Many of the sector experts have
consensus that pricing of petroleum products are not fixed in a transparent
manner. While the best effort is made to maximise collection of petroleum
development levy, oil marketing companies benefit automatically and the worst
sufferers are consumers. Availability of CNG has reduced the cost per kilometer
of cars users but motorcyclists and users of public transport are paying the
cost through their noses.

Therefore, there is an urgent need to
redefine POL pricing mechanism. Some of the experts also insist that government
should stop collecting PDL and find some other ways to enhance revenue
collection.

Policy makers and even the economist
say that number of taxpayers is very small in Pakistan. This is a fallacy
because each and every individual is paying tax. The indirect taxes still
constitute the largest chunk of revenue collection and some of the taxes are
general sales tax, central excise duty, petroleum and gas development levies.
Most of these taxes are collected at import and manufacturing levels.
Regrettably, many of the taxes are clubbed into cost of product while
determining the margins of intermediaries. Under the covenants of IMF assistance
program Pakistan is required to introduce reformed general sales tax (RGST),
aimed at enhancing revenue collection of the government.

Fixation of refining margins for crude
oil refineries also causes distortion is pricing. It is on record that at times
import of certain products cost less as compared to buying the same from the
local refineries. Following this bad policy has plunged capacity utilisation of
local refineries to less than 70 per cent.

On top of this, delay in getting the
payments from oil marketing companies has put the refineries of the verge of
bankruptcy. Because of liquidity crunch refineries are forced to borrow more and
more from the commercial banks, which adds to their financial cost, erode their
profitability and impairs their expansion programs. Most of the refineries
operating in Pakistan are based on the technology of fifties and sixties and are
capable of producing limited products and are incapable of producing higher
distillates. If they have ample funds at their disposal, most probably they
could undertake expansion plans. However, some of the experts are of the opinion
that Pakistan should emulate Singaporean experience and establish
state-of-the-art refineries as many of its neighbors are grossly deficient in
indigenous production of refined products.

Prior to the commencement of
mid-country refinery both the locally refined products and imported white oil
products had to be carried from Karachi to up country. Since the government
decided to follow uniform prices of POL products throughout the country
consumers living in Karachi and its vicinity has to bear the cost of
transporting these products to upcountry. Experts have been saying that this is
'unjust' policy, which penalises one group of consumers to ensure availability
of products at the same prices throughout the country.

It is often alleged that 'freight pool
system' is full of corruption. Despite construction of white oil pipeline, use
of railway wagons and maintaining pool of company-owned tankers, private tankers
are also used in large number. Under the prevailing system transporter is
required to carry product to certain destinations in the upper part of the
country and also given the freight cost. However, it is alleged that these
contractors carry only small part of the total designated quantities and sale
bulk of the products within Sindh and Punjab. Therefore, there is need to
abolish this system at the earliest. With the commencement of mid-country
refinery and construction of huge storage facilities in Mahmood Kot getting rid
of the freight pool system seems possible.

Some of the critics say that like any
other product POL products should also be sold at uniform prices throughout the
country. However, they also subscribe to the suggestion that government should
bear the cost of transportation and no effort should be made to recover it from
the consumers. Some experts say the prices of POL products should be the lowest
in Karachi because 1) three refineries are operating in Sindh, 2) imported POL
products also land at two of the seal ports located here and Karachi consuming
the largest percentage of overall consumption of POL products in the country.
Opponents of uniform prices of POL products say if consumers of food grains,
vegetables, fruits and many other products have to pay the freight cost why the
same law should be applicable of POL products.

It is suggested that public accounts
committee should look into the details of POL pricing policy. It is believed
that the government plans to reassign the mandate of fixing POL prices to oil
companies advisory committee. One wonders about a system where sellers determine
prices of their products and government and consumers look at them as helpless
entities. This certainly shows that the OCAC is stronger than the government.

Some of the experts are of the view
that there is nothing wrong with whether OCAC or Ogra fix the prices but the
method should be transparent and known to all. The government should publish the
pricing formula and mechanism by printing advertisements in newspapers and
running commercials on television channels.

Consumers have a legitimate complaint
that regulatory authorities be it Ogra or Nepra have failed to protect the
interest of consumers. In fact, they have been facilitating the government to
maximise its revenue collection and producers/service providers maximise their
profit.

Consumers are right in demanding that
freight pool system should also be abolished at the earliest. There is no need
to follow this policy after the commencement of mid-country refinery and
construction of black and while oil pipelines. Oil companies should also free
themselves from 'tanker mafia'. However, noting could be achieved without
resolving the inter corporate debt issue.

Last but not the least government
should ensure construction of modern crude oil refineries in the country by
resolving the refining margins. There should be some incentive for running the
refineries at optimum capacity utilisation. It will also help in bringing down
the cost of finished products in the country.